Income Tax on Insurance Commission

Let’s take a look at how is Insurance Commission taxed for an Insurance Agent

When Commission Earned is Less than Rs 60,000

In case total commissions earned by the insurance agent is less than Rs 60,000 from all sources and they do not maintain detailed account for expenses – certain ad hoc deductions are available to them which can be deducted from the commission income. Besides these deductions no other deductions are allowed from the commission income. This income is then taxed under the head Profits & Gains of Business & Profession.

Insurance Comission # No Deduction is allowed on bonus commission as this amount is fully taxable.

* NSC VIII Issue, Post Office Time Deposit Accounts, Post Office Recurring Deposit Accounts, Post Office Monthly Income Account Scheme, Kisan Vikas Patra and PPF accounts.

TDS on Insurance Income

TDS must be deducted from payments made to agents for continuance, renewal or revival of insurance policies at the time of credit of such income to the agent or when making payment, whichever is earlier, at the rate of 10%. No surcharge or cess is applicable. If the agent does not mention PAN number TDS has to be deducted at 20%. No TDS is deductible if the total receipts of the agent do not exceed Rs 20,000.The agent must obtain a certificate from the AO authorizing the payer to deduct lower or no tax.

When Commission Earned is more than Rs 60,000

In such a case no benefit of ad hoc deduction is available. Here your work of an insurance agent will be treated in the same way as that of a freelancer or a profession and income will be computed in the same way as we do for a freelancer. Such Income will be taxed under the head Profits & Gains of Business & Profession. Here is a link to our post of deductible expenses for freelancers Freelancer – Income & Expenses – the same guidance is applicable to insurance agents.  As a thumb rule – if you satisfy these conditions regarding your expenses, you can deduct them from your income-

  •  The expense is for the insurance agent work being carried on
  •  It has been spent fully & exclusively for the purpose of your work
  •  It is incurred during the tax year
  • It is not a capital expenditure or a personal expenditure
  • It is not incurred for any purpose which is an offence or is prohibited by law

Do go through the detailed post linked above and you will be able to understand what are the kind of expenses that you will be allowed to deduct from your commission income.

Once you calculate your Insurance Income and deduct allowed Expenses and arrive at your Profits & Gains of Business & Profession, go through this post to compute your taxable income Freelancer-Computing your Taxable Income.

Here you will know how your tax payable will be calculated Freelancer-Calculating Tax Payable & Due Dates

Do  reach out to us if you have any questions support@cleartax.in

 

 

 

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